WTI Crude Oil and the Case Against Top/Bottom Picking

Traders often think they have to catch each and every move in its entirety, in order to be successful. The sad truth is that is impossible and trying to achieve it can easily backfire and lead to more losses instead of bigger profits. Whether you trade Forex, WTI crude oil or stocks, nobody can catch all the pips, cents points or dollars that are theoretically available for grabs in everyday trading, even when his/her analysis is correct.

Our website is dedicated to the Elliott Wave Principle and its patterns. We have shown you plenty of examples that, when properly applied, it can put traders ahead of the next market swing without them having to guess what kind of news or event is going to trigger it. That said, the Wave principle is not perfect and does not pretend to hold the answers to all questions.

For example, even if the pattern the analyst has recognized suggests a price reversal should soon be expected, the exact price level at which this reversal is going to occur remains unknown. WTI crude oil gave us a great example last week. The following chart was sent to our clients before the market opened on Monday, September 3rd. (some marks have been removed for this article)
The above-shown analysis led us to the conclusion that WTI crude oil has been drawing an a)-b)-c) expanding flat correction since the bottom at $67.03 in mid-July. There was a w-x-y double zigzag in wave a) up to $70.41, followed by a simple a-b-c zigzag in wave b) down to $64.40. In this respect, the impulsive recovery from $64.40 fit perfectly in the position of wave c).

According to the theory, once a correction is over, the larger trend resumes. Since the price of WTI crude oil had been declining prior to this expanding flat retracement, it made sense to expect the bears to return as soon as wave c) completes the pattern. Three days later, when it was time to send the short-term updates on Wednesday, the chart of WTI looked a little different.
WTI crude oil prices kept climbing for a while and reached a high of $71.36 a barrel on Tuesday. This, however, did not change the negative Elliott Wave outlook and the following bearish reversal only strengthened the bearish case.

Only after this reversal it was safe to join the bears. We could not have known in advance whether the count was correct or not. Any attempts to pick the top of wave c) could have easily resulted in a loss, given that leverage is involved and no specific stop-loss level could have been identified at the time.

Yes, we missed part of the decline by waiting for the bearish reversal to actually occur before going short, but that is the price traders have to pay to limit the risk of the trade. A little patience can make a huge difference for long-term success. Here is an updated chart of WTI crude oil ahead of tomorrow’s open.
The price fell to an intraday low of $66.84 on Friday, before recovering to close the weekly session at $67.77. A short position initiated after the bearish reversal was based on the very same Elliott Wave count, but carried a lot less risk than a short position initiated prior to the reversal.

In conclusion, picking tops and bottoms is simply not worth the risk. Traders can still be successful even when missing out on part of the move. In fact, acknowledging the fact that catching every cent is impossible is likely going to improve your odds of success in the long run.

What will WTI crude oil bring next week? That is the subject of discussion in our next premium analysis due out later TODAY!

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